2014 (8) TMI 565 - HC - Income Tax

Exemption u/s 10(23C)(iiiad) Sale of bonds and property Capital receipt or non-recurring receipt - Whether the Tribunal was right in holding that the receipt from the sale of bonds and property had to be excluded from the aggregate receipts received during the year by treating the receipts as capital receipt and non-recurring receipt in nature and thereby arriving at the aggregate receipts of less than 1 Crore and consequently holding that assessee is entitled to exemption under Section 10(23C)(iiiad) Held that - CIT(A) while accepting the plea of the assessee that the sale proceeds of land and bonds is capital in nature and not recurring income, 85% of the sale proceeds have been expended by the assessee in furtherance of the object of the Trust CIT(A) has rightly classified the annual receipts during the financial year 2003-04 being the annual and recurring income of the assessee - The sale proceeds of land and bonds which are capital receipts in nature, are not recurring and are once in a lifetime - The key emphasis is on the words annual receipts - The sale proceeds of land and bonds cannot be equated to annual receipts as stated u/s 10(23C) of the Act - The sale is in the nature of conversion of a capital asset from one form to another no substantial question of law arises for consideration Decided against Revenue.

Summary

Issues:
1. Interpretation of Section 10(23C)(iiiad) regarding exclusion of receipt from the sale of bonds and property as capital receipt for determining exemption eligibility.

Analysis:
The case involved a dispute over the interpretation of Section 10(23C)(iiiad) of the Income Tax Act, specifically regarding the exclusion of receipts from the sale of bonds and property as capital receipts for determining exemption eligibility. The appellant, the Revenue, challenged the order of the Income Tax Appellate Tribunal, which had allowed the assessee's claim for exemption under Section 10(23C)(iiiad) for the assessment year 2004-2005. The substantial question of law raised was whether the Tribunal was correct in excluding the receipt from the sale of bonds and property from the aggregate receipts, considering them as capital receipts and non-recurring in nature.

The facts revealed that the assessee, an educational institution, had received income from the sale of land and bonds during the financial year 2003-2004. The Assessing Officer initially denied the exemption under Section 10(23C)(iiiad) on the grounds that the receipts exceeded the prescribed limit and the trust was not registered under Section 12A of the Act. However, the Commissioner of Income Tax (Appeals) accepted the assessee's argument that the sale proceeds were capital in nature and not recurring income, allowing 85% of the sale proceeds to be considered as expended for the trust's objectives.

The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals), emphasizing that the sale proceeds from land and bonds were capital receipts, not annual receipts, and were utilized for maintaining the educational institution. The Tribunal concluded that the exclusion of these receipts from the aggregate annual receipts was justified, leading to the grant of exemption under Section 10(23C)(iiiad) to the assessee. Subsequently, the Revenue appealed against this decision.

Upon hearing the arguments and examining the relevant provisions, the High Court upheld the Tribunal's decision. It clarified that the sale proceeds of land and bonds could not be equated to annual receipts as per Section 10(23C) of the Act. The Court affirmed that the sale was a conversion of a capital asset and not a recurring income, supporting the conclusion reached by the Commissioner of Income Tax (Appeals) and the Tribunal. Consequently, the appeal by the Revenue was dismissed as lacking merit, with no substantial question of law for consideration.

In summary, the judgment clarified the distinction between capital receipts and annual receipts under Section 10(23C)(iiiad) of the Income Tax Act, affirming the exclusion of sale proceeds from bonds and property as non-recurring income for determining exemption eligibility for educational institutions.